Dahl-Smyth, Inc. v. City of Walla Walla

This case requires us to determine how 'measurable damages'
should be calculated when a city annexes territory covered by the
certificate of a private solid waste collection company. Former RCW
35A.14.900 (1996) provides that when a city annexes territory, the city may
allow the territory's garbage hauler to continue to serve the territory for
five years.1 If the city so chooses, the city must pay 'any measurable
damages as a result of any annexation.' RCW 35A.14.900. The Court of
Appeals held that 'measurable damages' do not include the loss in value to
the certificate and that such damages must be capable of exact measurement.
We reverse.

FACTS

Dahl Smyth, Inc. (DSI) provided exclusive solid waste collection service in
portions of Walla Walla County pursuant to a Certificate of Public
Convenience and Necessity (commonly called a 'G certificate') issued by the
Washington Utilities and Transportation Commission (WUTC) as required by
RCW 81.77.040. Private solid waste collection companies, such as DSI, are
subject to the supervision and regulation of the WUTC. RCW 81.77.030. The
WUTC sets the rates that a certificate-holder may charge and may suspend,
revoke, alter, or amend the certificate for cause. Id.
Between 1982 and 2000, the City of Walla Walla (City) periodically annexed
various portions of DSI's territory containing a total of 269 occupied
housing units. Under former RCW 35A.14.900, all utility franchises are
automatically cancelled upon annexation.2 However, a city may elect to
continue a garbage hauler's service after annexation. RCW 35A.14.900. In
this case, DSI continued to serve the annexed territories for at least five
years after the annexations occurred, although the City did not always
grant DSI formal franchise extensions. Thereafter, the City chose to
provide its own solid waste collection service, thus decreasing DSI's
territory with each annexation.

In August 1985, DSI brought suit against the City in Walla Walla County
Superior Court, seeking 'measurable damages' as a result of the City's
annexations of its territory between 1960 and 1984. By agreement of the
parties, the City did not file an answer until July 1999 because both
parties were awaiting a decision in a similar case involving DSI, the
neighboring city of College Place, and many of the same issues. See Dahl-
Smyth, Inc. v. City of College Place, No. 7102-2-III (Wash. Ct. App. Feb.
5, 1987).3 That case ultimately resulted in an unpublished Court of
Appeals opinion. 46 Wn. App. 1049 (1987).

Both parties moved for partial summary judgment in 1999. Due to the
College Place decision, the trial court found that DSI was collaterally
estopped from arguing that the City was required to grant formal franchise
extensions, and that 'measurable damages' do not include lost profits.4
Citing Metropolitan Services, Inc. v. City of Spokane, 32 Wn. App. 714, 649
P.2d 642, review denied, 98 Wn.2d 1008 (1982), the court also dismissed
DSI's constitutional taking claim.5 The only remaining issue for trial was
the amount of 'measurable damages,' which, in accordance with College
Place, was to be based on the decrease in the value of the certificate due
to the annexations.

After a bench trial, the court ruled that DSI's certificate was a property
right that has value distinct from lost profit and awarded DSI 'measurable
damages' in the amount of $425,000. The judge found DSI's two expert
witnesses persuasive on the appropriate methodology of calculating
'measurable damages.' Both experts testified that the current method for
calculating damages is to multiply the EBDIT or EBITDA times a multiplier
of 7.6. (EBDIT consists of earnings before depreciation, interest and
taxes, while EBITDA is earnings before interest, taxes, depreciation and
amortization.) Both of DSI's experts' calculations included an estimate of
future revenue minus saved expenses. The City's expert, on the other hand,
testified that DSI did not incur any 'measurable damages' since it had the
benefit of the five-year franchise extensions, but the trial court found
this testimony unpersuasive.6

The City appealed to Division Three of the Court of Appeals, which reversed
the damage award and remanded for further proceedings. Dahl-Smyth, Inc. v.
City of Walla Walla, 110 Wn. App. 26, 38 P.3d 366 (2002). The Court of
Appeals accepted Dahl-Smyth's proposition that the hauler's certificate is
a property right and that damages for cancellation by annexation are
governed solely by RCW 35A.14.900. Id. at 34. The court then held that
'measurable damages' meant only 'those claims that are directly connected
to the cancellation of the franchise and capable of exact measurement.'
Id. at 35. According to the court, such damages do not include lost
profits or loss in value; rather, they are limited to 'incidental and
consequential damages proximately caused by the cancellation of the
franchise.' Id.

DSI appealed to this court and we granted review.

II

ANALYSIS

The single issue before this court is whether the Court of Appeals erred in
its determination of what is to be included in a calculation of 'measurable
damages.' Because we find that there is no indication in the statute that
'measurable damages' must be capable of exact measurement nor any
indication that 'measurable damages' are limited to incidental and
consequential damages, we reverse the Court of Appeals.

If a city annexes territory covered by a garbage hauler's certificate, the
city may retain the hauler's service or choose to provide its own solid
waste collection service. RCW 35.21.120. However, if the city takes over
collection, RCW 35A.14.900 requires the city to compensate the holder of
the certificate. Under RCW 35A.14.900, the city must choose one of three
options. The city can: (1) purchase the franchise for a negotiated price,
(2) condemn the franchise upon payment of damages, or (3) permit the
franchisee to continue to serve the annexed territory for five years after
annexation, at which point the city may then provide its own garbage
collection service. Former RCW 35A.14.900 (1996). If the city chooses the
third option, the city is liable for 'any measurable damages as a result of
any annexation . . . .' Id.; see also Metropolitan, 32 Wn. App. at 719
(holding that 'measurable damages' only apply if the city elects to grant
the five-year franchise extension). The statute does not define
'measurable damages.'

There is very little authority in Washington case law on the meaning of the
phrase 'measurable damages.' In Metropolitan, a garbage hauler sued the
City of Spokane for damages to its franchise due to annexations.7 32 Wn.
App. 714. The Court of Appeals found that Metropolitan's claim for
'measurable damages' was statutory rather than constitutional, and was
therefore barred by the statute of limitations. Id. at 719-20.

Although
Metropolitan's claim was barred, the Court of Appeals discussed the meaning
of 'measurable damages:' '{T}he franchisee who is granted a 5-year
franchise after annexation has the right under the statute to seek damages
for any loss sustained over and above the benefit derived from the
franchise.' Id. at 719 (emphasis added). Because the claim was time
barred, the court did not elaborate on what such losses would include.
In 1982, DSI brought suit under former RCW 35A.14.900 against the City of
College Place after the city annexed some of its territory, arguing that
'measurable damages' included lost profits and the decrease in value of the
certificate. College Place, slip op at 3. The trial court refused to
allow DSI to recover lost profits, limiting damages to the decrease in
value of the certificate. Id. at 4. In an unpublished decision, the Court
of Appeals found that 'if the Legislature meant to limit damages to the
loss in value of the certificate, it would have so stated, instead of using
the phrase 'any measurable damages.'' Id. at 5. The Court of Appeals
nonetheless refused to award lost profits since they are based on estimated
future earnings and costs, and are therefore not 'capable of exact
measurement.' Id.

'Capable of Exact Measurement'

On appeal in this case, the Court of Appeals found, in accordance with the
College Place ruling, that by using the word 'measurable,' the legislature
intended to allow only those damages that were 'capable of exact
measurement.' Dahl-Smyth, 110 Wn. App. at 35 (emphasis added). DSI's
expert admitted at trial that his calculation of damages was 'not subject
to any kind of exact measurement, they are estimates at best.' Report of
Proceedings at 81. Apparently because loss in value cannot be measured
exactly, the Court of Appeals concluded that 'measurable damages' do not
include the loss in value to the hauler's certificate. Dahl-Smyth, 110 Wn.
App. at 34-35. The court cited Metropolitan, stating: 'In effect, Dahl-
Smyth requested and received as 'measurable damages' the very damage award
denied in Metropolitan: just compensation for the loss in value of its
franchise.' Id. at 34. However, Metropolitan does not prohibit the
recovery of 'measurable damages' for loss in value of the franchise.
Rather, the Metropolitan court stated that the franchisee could seek
damages for 'any loss sustained over and above the benefit derived from the
franchise.' 32 Wn. App. at 719 (emphasis added).

'Measurable' is not defined in RCW 35A.14.900. When no statutory
definition is provided, words in a statute should be given their common
meaning, which may be determined by referring to a dictionary. Budget Rent
A Car Corp. v. Dep't of Licensing, 144 Wn.2d 889, 899, 31 P.3d 1174 (2001).
Webster's defines 'measurable' as 'capable of being measured,' 'great
enough to be worth consideration: significant,' and 'of limited duration:
not indefinite; foreseeable.' Webster's Third New International Dictionary
1399 (1971). Nowhere in Webster's definition does it state that
'measurable' means 'exact.'

It seems unlikely that the legislature meant for 'measurable damages' to be
awarded only if capable of exact calculation, particularly as such
precision is not required in the calculation of other types of damages
awards. For example, in discussing a damages claim for lost profits, this
court has stated: 'It is not necessary that lost profits be susceptible of
exact calculation. It is sufficient if there be data from which the
profits can be ascertained with a reasonable degree of certainty and
exactness.' Cal. E. Airways, Inc. v. Alaska Airlines Inc., 38 Wn.2d 378,
380, 229 P.2d 540 (1951). See also 22 Am. Jur. 2d Damages sec. 486 (1988).
Thus, we find it more likely that, as DSI argues, the legislature used the
word 'measurable' to indicate that damages must be capable of calculation
by some accepted methodology.

Incidental and Consequential Damages

The Court of Appeals further limited 'measurable damages' to incidental and
consequential damages. Yet if the legislature had intended such a meaning,
it could have included the terms 'incidental' and 'consequential' in the
statute rather than using the term 'measurable.' The inclusion of one term
as opposed to another in a statute implies that the legislature intended to
exclude the other. In re Detention of Williams, 147 Wn.2d 476, 491, 55
P.3d 597 (2002). Thus, we determine that the use of the term 'measurable
damages' indicates that the legislature did not in fact mean incidental and
consequential damages.

Fair Market Value and Offset

DSI argues that the difference in the fair market value of its certificate
before and after the annexations without any offset for the five-year
extension is the appropriate way to calculate 'measurable damages.' The
City, on the other hand, asserts that because fair market value is used to
calculate damages in condemnation cases, it cannot also be used to assess
the appropriate amount of 'measurable damages.' The City also contends
that the amount of damages should be reduced by the benefit gained from the
five-year franchise extensions.

This court routinely calculates damages by assessing fair market value in
condemnation cases. See, e.g., Lange v. State, 86 Wn.2d 585, 547 P.2d 282
(1976); State v. Rowley, 74 Wn.2d 328, 444 P.2d 695 (1968); State v.
Larson, 54 Wn.2d 86, 338 P.2d 135 (1959). However, condemnation is one of
the other two choices that a city has under RCW 35A.14.900. Presumably,
'measurable damages' has a separate and distinct meaning under the five-
year extension option.

The court should not construe statutory language ''so as to result in
absurd or strained consequences . . . .'' In re Custody of Smith, 137
Wn.2d 1, 8, 969 P.2d 21 (1998) (quoting Duke v. Boyd, 133 Wn.2d 80, 87, 942
P.2d 351 (1997)). A statute should be read as a whole and the various
provisions should be read in light of each other. Miller v. City of
Tacoma, 138 Wn.2d 318, 338, 979 P.2d 429 (1999). Since condemnation is an
alternative to the five-year extension plus 'measurable damages' option, it
is presumed to have an independent and distinct meaning. See Haley v.
Highland, 142 Wn.2d 135, 147, 12 P.3d 119 (2000) (stating that a difference
in meaning is presumed when the legislature uses different language at
various points within the same statute). This distinction makes common
sense. If 'measurable damages' were assessed by calculating fair market
value with no offset for the five-year extension, then no city would ever
choose the five-year extension option. If it did, it would have to pay
fair market value plus grant a five-year extension, whereas if it instead
chose the condemnation option, it could simply pay fair market value with
no extension. Thus, by reading the statute as a whole, we conclude that
the legislature did not intend for 'measurable damages' to equal the
difference in the fair market value of the certificate before and after
annexation without an offset.

In ascertaining the proper measure of damages, we look to other cases
involving injury to property for guidance. This court has held that the
proper measure of damages when property is permanently damaged is the
difference between the value of the property before the injury and its
value after the injury. Colella v. King County, 72 Wn.2d 386, 394, 433
P.2d 154 (1967); Drake v. Smith, 54 Wn.2d 57, 62, 337 P.2d 1059 (1959).
See also 22 Am. Jur. 2d Damages sec. 405, at 490 (1988).

Under this
theory, however, because the five-year franchise extension also compensates
the hauler for the loss of territory, we believe the award for diminution
in value should be offset by the benefit gained by reason of the extension.
The Metropolitan decision supports this interpretation. The Metropolitan
court stated that a garbage collection company that receives a five-year
extension 'has the right under the statute to seek damages for any loss
sustained over and above the benefit derived from the franchise.' 32 Wn.
App. at 719 (emphasis added). Here, DSI enjoyed an extended five-year
benefit because the City chose to grant it an extension rather than
negotiating a purchase or condemning the franchise. In accordance with
Metropolitan, DSI can seek damages for any loss that exceeds the benefit
that it received from the five-year franchise extensions, but cannot claim
both damages for the full loss in value of the certificate plus the benefit
of the five-year extension.

The trial court found that the DSI certificate had 'value unrelated to the
5 or 7 year continued service provision.' Clerk's Papers at 1621.
However, given that the other two options provided for by the legislature
in RCW 35A.14.900 are a negotiated sale and condemnation, it is unlikely
that any city would choose to grant the five-year extension if the
legislature also meant for a city to pay damages without an offset for the
benefit accrued during the five-year franchise extension. Therefore,
although it is appropriate to assess 'measurable damages' based on the
change in fair market value, such a damages award must be reduced by the
amount of benefit gained from the franchise extension.
Lost Profits

The trial court ruled on summary judgment that DSI was collaterally

estopped from claiming lost profits due to the College Place decision. The
Court of Appeals agreed with the College Place court's reasoning, finding
that lost profits were 'too speculative to qualify as 'measurable
damages.'' Dahl-Smyth, 110 Wn. App. at 35. Despite its stated exclusion
of lost profits, the trial court accepted the testimony of DSI's experts,
who calculated the loss of the certificate's value by estimating DSI's
future revenues minus future expenses from 1999 to 2009 for the annexed
territory. 8 The City argues that this type of calculation results in
recovery of lost profits.

A commonly accepted method of determining the value of a business is to
estimate its ability to generate future profits. Charles H. Meyer,
Accounting and Finance for Lawyers 373 (1995). See also Business Valuation
Methods, American Express Small Business 1 (2002), at
smallbusiness//resources/starting/valbiz.shtml (last visited Nov. 4, 2002).
Similarly, the value of an asset can be determined by evaluating the
relationship between the profit that it generates and the cost of earning
that profit. Samuel Greengard, Get a Grip on Assets, Business Finance
Magazine 3 (Jan. 2002), at http://www.bfmag.com/archives (last visited Nov.
4, 2002). See also Eugene F. Brigham, Fundamentals of Financial Management
39 (7th ed. 1995) ('The value of an asset (or a whole firm) is determined
by the cash flow it generates.').

Garbage collection certificate is an asset. It gives its possessor the
right to generate profits. The greater the profit the certificate is
expected to generate, the more valuable the certificate. Thus, an
evaluation of the change in value to DSI's certificate necessarily includes
a calculation of the profit that DSI could have expected to earn via the
certificate.

Refusing to allow consideration of lost profits in assessing the value of a
certificate would be prohibiting the use of a commonly accepted method of
asset valuation. Thus, we hold that lost profits may be used to assess the
value of a garbage collection company's certificate for the purpose of
awarding 'measurable damages.

Calculation at Time of Annexation

The City argues that because the certificate is cancelled at the time of
annexation, the calculation of 'measurable damages' should be based on
rates and population counts existing at the time of annexation. DSI, on
the other hand, used rates and customer counts existing at the time of
trial to prepare its calculations of loss in value. The Court of Appeals
found that 'measurable damages' were 'not necessarily fixed as of the
annexation date.' Dahl-Smyth, 110 Wn. App. at 35. Both of DSI's experts
admitted that their calculations were based on 1999 customer counts and
rates, despite the fact that the annexations occurred at various times
between 1982 and 2000. Thus, the calculation of damages for some of the
annexations was based on customer counts and rates that existed 17 years
after the annexations took place.

Former RCW 35A.14.900 provides for the automatic cancellation of the
certificate at the time of annexation. RCW 35A.14.900. See also Fed. Way
Disposal Co. v. City of Tacoma, 11 Wn. App. 894, 895, 527 P.2d 1387 (1974)
(stating that annexation by a city cancels any garbage collection permit
issued to a private company). Because cancellation occurs at annexation,
the change in the fair market value must also be calculated based on data
collected at that time. To do otherwise could result in an inflated
measure of damages. As the city services manager testified at trial,
annexation tends to increase the population density within the annexed
territory because of the availability of city utilities. Thus, allowing
damages to be calculated based on 1999 customer counts for annexations that
occurred as far back as 1982 could lead to an inflated damage award.10
This court has previously held that damages to property should be
calculated at the time of the injury.11 In calculating damages for
permanent injury to property, ''the general rule applicable is the
difference between the market value of the property immediately before the
damage and its market value immediately thereafter.'' Colella, 72 Wn.2d at
393 (quoting Harkoff v. Whatcom County, 40 Wn.2d 147, 152, 241 P.2d 932
(1952) (emphasis added)). See also 22 Am. Jur. 2d Damages sec. 407, at 492
(1988). The damage in this case is the annexation of the hauler's
territory by a city, which results in the immediate cancellation of a
hauler's certificate. Thus, we hold that the calculation of the difference
in fair market value before and after annexation must be based on rates and
population counts that exist at the time of annexation.

CONCLUSION
Under RCW 35A.14.900, 'measurable damages' are to be calculated at the time
of annexation by determining the difference in market value of the hauler's
certificate before and after annexation. In determining an award, the
amount of damages must then be reduced by the benefit gained by the hauler
from the five-year
extension of the franchise. P>* * *

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